Correlation Between GM and IShares SP
Can any of the company-specific risk be diversified away by investing in both GM and IShares SP at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining GM and IShares SP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and iShares SP 500, you can compare the effects of market volatilities on GM and IShares SP and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in GM with a short position of IShares SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and IShares SP.
Diversification Opportunities for GM and IShares SP
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between GM and IShares is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and iShares SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares SP 500 and GM is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on General Motors are associated (or correlated) with IShares SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares SP 500 has no effect on the direction of GM i.e., GM and IShares SP go up and down completely randomly.
Pair Corralation between GM and IShares SP
Allowing for the 90-day total investment horizon General Motors is expected to generate 2.15 times more return on investment than IShares SP. However, GM is 2.15 times more volatile than iShares SP 500. It trades about 0.26 of its potential returns per unit of risk. iShares SP 500 is currently generating about 0.09 per unit of risk. If you would invest 5,273 in General Motors on August 27, 2024 and sell it today you would earn a total of 580.00 from holding General Motors or generate 11.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. iShares SP 500
Performance |
| Timeline |
| General Motors |
| iShares SP 500 |
GM and IShares SP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and IShares SP
The main advantage of trading using opposite GM and IShares SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, IShares SP can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in IShares SP will offset losses from the drop in IShares SP's long position.The idea behind General Motors and iShares SP 500 pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| IShares SP vs. Vanguard SP 500 | IShares SP vs. SPDR Dow Jones | IShares SP vs. iShares SP 500 | IShares SP vs. iShares China CNY |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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